Shangri-La CEO Giovanni Angelini Spending US$130
millionto Move the Chain to the Top of the Ladder

Hotel Asia PacificApril 2002

By Steve Shellum

Let's talk about an evolution. With the proliferation of designer hotels,
high-tech hotels and arty-tarty hotels, Shangri-La Hotels and Resorts is
having none of it. Although the Asian born-and-bred brand has its eyes
focused on new horizons, it is keeping its feet firmly on the ground.

Having achieved brand market leadership in Asia with 18,500
rooms in 38 hotels, the company's strategic plan now incorporates the goal
of expanding the Shangri-La brand globally, with an interest in exploring
opportunities to operate hotels in gateway cities and key resorts around
the world under management agreements, equity participation or ownership.

Last month, the company signed a HK$3 billion, five-year loan with 14
banks to refinance a syndicated loan due in August and for general working
capital purposes. Personally heading the

Giovanni Angelini

group’s expansion efforts is CEO and MD Giovanni Angelini, who also has
a war-chest of more than US$130 million to spend on renovations of existing
properties.

Renovation projects are being phased in at 14 of the group’s 38 properties.
Major renovations are also ongoing at: the Shangri-La Hotel, Kuala Lumpur;
the Shangri-La Hotel, Bangkok; the Makati Shangri-La Hotel; the China World
Hotel, Beijing; and the Kowloon Shangri-La, Hong Kong.

The renovation programme will bring a “rich, contemporary look” to Shangri-La’s
hotels, and will extend beyond guestrooms and public areas to encompass
everything from staff uniforms to collateral and hotel signage.

A major component of the programme is the development of innovative
restaurants and lounges, with 12 new concepts debuting this year and others
under development.
But Angelini is quick to stress: “We’re talking evolution, not revolution.

“It’s not a new look, and we are not trying to reinvent the Shangri-La
wheel. We will retain the character of our hotels, even though there will
be some new technology, which is critical and needs to be expanded with
business.

“But a computer will never cook your dinner or make your bed. We are
a people business and will always be a people business.”

The brand, whose name was inspired by James Hilton's legendary novel
Lost Horizon, was born in 1971 when Malaysian entrepreneur Robert Kuok
opened the first Shangri-La hotel in Singapore.

The company - which is now based in Hong Kong - has since grown into
the largest Asian-based deluxe hotel group in the region. Its portfolio
includes five Traders Hotels – a sister brand that was launched in 1989
(with the Traders Hotel Beijing) to deliver high-value, mid-range, quality
accommodation to business travellers.

It is regarded as one of the world's finest hotel-management companies,
and has garnered numerous international awards for its uncompromising standards
of service.
But with other Asian-born hotel companies – most notably Mandarin Oriental,
Raffles International and, to a lesser extent, the Peninsula Group – already
making major headway in their efforts to extend their brands in key gateway
cities in the US and Europe, the map in Angelini’s office looks a little
bare of flags outside of Asia.

Even in the region, there are some notable gaps – particularly Tokyo,
Seoul and Sydney.

“We are keen to get into these markets, but only if it makes financial
sense,” says Angelini.

“In Tokyo, for instance, the price of construction has come down, but
not to the level that would make a new hotel viable.

“It’s still a very delicate market, and we won’t put up our flag just
to say we are there, even though we would like to be there for our reputation.

“In the rest of the region, though, we are very well covered.”

What about key gateway cities outside of Asia, which are crucial for
any hotel brand that has aspirations of becoming a true global player?

“Key gateway cities in the US and Europe are very important – but, again,
only if we get the right deal to make financial sense. We won’t go in just
for the sake of putting our flag there.

“We have been looking for a number of years and, even though prices
have come down in many markets post 9-11, everything we do has to be financially
viable.
“Although we want to put quality products into the gateways that our
clients come from – particularly New York, San Francisco, Washington, Los
Angeles, London, Paris and Berlin - we have to be sure we can transplant
the Shangri-La culture there.
“Can we, for example, do the same things in New York that we have achieved
in Hong Kong? That is very critical.”

Whatever opportunities might occur elsewhere, the group’s focus will
remain in Asia.
“Our objective has always been to be the dominant hotel company in
Asia. Dominant in terms of location, the products we have and, most importantly,
the volume of repeat customers,” says Angelini.

“It’s a moving target, but the Shangri-La brandname recognition and
reputation are significant elements that make the group stand out among
local, regional and other smaller competitors.

“Our size also affords us greater flexibility to respond to market needs,
compared to the larger groups, and our brand is our biggest asset that
differentiates us from a number of other hotel companies.”

Although there may be some big gaps in its portfolio, there is one crucial
market that Shangri-La has almost sewn up – the luxury hotel sector in
China, where it currently operates 16 hotels.

The group opened its first property there, the Shangri-La Hotel, Hangzhou,
in 1984 when the country was just opening up to outside investment. It
has since firmly established itself not only as a trailblazer in China’s
hotel industry, but also as a highly respected and recognised brand.

It’s left other luxury brands – both from within and outside Asia –
desperate to catch up in what many industry analysts believe will become
both the world’s leading tourist destination and the biggest generator
of outbound travellers.

And when mainland Chinese do start travelling en masse and with thick
wallets, says Angelini, many of them will be staying in Shangri-La properties,
whether in Hong Kong, New York or London.

The group last month signed a 505-room resort hotel in Hainan, which
is scheduled to open in 2005. Other properties under development include
the 264-room Shangri-La Hotel Zhongshan, the 280-room Shangri-La Hotel
Zhengzhou and the 416-room Shangri-La Hotel Fuzhou, all of which are scheduled
to open next year.

Currently, of the group’s nearly 20,000 rooms, 8,293 are in mainland
China.

Two of its landmark China properties are currently undergoing massive
extensions and renovations: phase three of the China World in Beijing;
and an extension tower at the Pudong Shangri-La in Shanghai.

“These hotels will reinforce Shangri-La’s dominant position as the luxury
hotel group in China,” says Angelini. “We see huge potential in the country,
which is benefiting both from the major growth in domestic travel as well
as the increase in business and leisure travellers.

“As we have been in China for 18 years with an established brandname,
we are well placed to capture much of this new business in the secondary
cities, which will increase now it has entered the WTO.”

The group is currently in negotiations for a hotel in Xian and its second
in Shenzhen. “We are also in talks for many others, but I am not at liberty
at this stage to disclose where,” says Angelini. “I can say, though, that
we are close to signing in two cities.
“We are also keen to develop hotels in the western part of the country,
such as Chengdu and Chongqing, where we do not yet have a presence. By
2008, we plan to be in all major Chinese cities.”

Angelini sees strong growth potential in China for the Traders brand.
“Most owners want to see the Shangri-La flag flying on their hotels but,
in all honesty, some properties in some destinations would be better suited
to the Traders brand.
“This is a very strong brand for the domestic market, which is already
huge and expanding at a phenomenal rate. We are developing awareness of
and confidence in both the Shangri-La and the Traders brands, which is
also crucial to capture the outbound market.

“Just look at what the Japanese have done to the travel industry around
the world. The Chinese will do the same, only much faster.”

The company has not ruled out launching a 3-star brand in China. “Some
cities are overbuilt at the moment, but that won’t be the case in the long-term.
We are not closing any doors,” says Angelini.

Shangri-La has taken its first step out of Asia and into the Middle
East, where it has three properties under development: the 301-room Shangri-La
Hotel, Dubai (opening March 2003); the 250-room Traders Hotel, Dubai (July
2003); and the 703-room Shangri-La's Barr Al Josiah Resort, Muscat, Oman
(July 2005).

Negotiations are also ongoing for several others. “The region has enormous
potential, and we are looking at about seven hotels in the next five years,”
says Angelini.
He believes that North Africa and Egypt also have a lot of potential,
but adds: “There are some areas we would not go into.”

He is particularly excited about the Muscat property, which will feature
four concepts: deluxe; 5-star; 4-star; and apartments. “We are very proud
of it. It will be the best integrated resort in the Middle East.”

Explaining his Middle East philosophy, Angelini says: “It is a logical
move for us to gradually expand there. It is between Europe and Asia, and
the area attracts both Europeans and Asians.”

The move also marks a basic change in the group’s philosophy as all
three Middle Eastern properties are management contracts, with no equity
involvement.
Currently, only three properties in its portfolio are management contracts:
the Far Eastern Plaza Hotel, Taipei; the Traders Hotel, Manila; and the
Shangri-La Dingshan, Nanjing.

“We look to control our own destiny,” says Angelini. “That is very important.
The whole owner/operator relationship – in fact, the whole management structure
- is based on that.

“But having firmly established Shangri-La in Asia, we are now looking
at management contracts in key destinations to expand the brand.

“We have got our heart in it and are totally committed, both to the
brand and to quality, and that is greatly appreciated by the owners,” says
Angellini.

“An essential element of our operating policy is the belief that the
interests of individual hotels are best served by a clearly defined partnership
between the operator and owner.

”While maintaining the required high standards of product and service,
all efforts are focused on perceiving each hotel as a business operation
that must achieve a return on capital investment.”

Each property has a Policy Implementation Committee (PIC), which comprises
representatives of both the owner and the operator.

“The structure of the PIC emphasises that the management is responsible
for the hotel's day-to-day operation and marketing, while the owner sets
down the principles and broad policies under which the hotel will operate.”

He adds: “But that doesn’t mean we can spend, say $20 million, on renovations
to a particular property without defending and justifying our reasons for
it.”

Angelini
has a clear vision of, and a strong focus on, what the Shangri-La brand
stands for, where it came from and where it is going.

Does he ever see the day when the group will join its more hip competitors
and launch a brand of “S” hotels, along the lines of Starwood’s “W” and
M&C’s “M”?

“Hip? No. We see hospitality more in terms of comfort and consistency.
When I want to go to sleep in a hotel room, I should know where to switch
everything off. It’s time to go back to the basics.”